SchifferLine 15 September 2015

Timely Real Estate News………………….15 September 2015

***************************************************************Sales remain positive, but barely….it’s a ho-hum JulyWhile we saw for the first time last month where sales volume finally surged ahead of last year’s mark (by 4.7%), we are still seeing solid sales, but the growth we anticipated for this summer is still hovering around ‘staying even’, chalking up just under a 1% sales growth over 2014 year to date. Sales volume for 2015 through the first eight months was still impressive — $2.170 billion vs. $2.153 billion for last year. “We’re not setting the world on fire,” Carole Schiffer remarked, “but keeping up with last year during this recent market downturn is really saying something positive about our local real estate market and a nice comfortable place to be.”

Median sale prices move slightly above for the year….Median sales prices for the five communities I report on — Beverly Hills, Beverly Hills Post Office, Bel-Air, Westwood/Century City and Brentwood — had what might be described as a “ho-hum” August performance. While median sales prices were up in four of the five communities, ever so slightly, Westwood/Century City was down 8% — not the end of the world. Beverly Hills was up 2% in MSP for the year compared to a year ago….BHPO was up 1%, Bel-Air was up 5%, and Brentwood was up 2% for the year. As always I do remind you that these are sales put through the multiple listing service, and doesn’t account for any private sales.

“I think the market is telling us that we remain a strong player for buyers — sales volume (demand) is still ahead of 2014, and with four communities holding their own in a very difficult down market (August), we are optimistic for a solid year, but we’ll see. It’s only mid-September,” Carole said. One of the biggest issues is still the lack of inventory.

In comparing median sales prices for August 2015 vs. July 2015, we saw three communities up: Bel-Air was up 20% over the previous month…. Westwood/Century City was up 14%, and Brentwood was up 15%. But when you step back and compare August 2015 to August 2014, BHPO was up 11%, Bel-Air was up 18%, and Brentwood was up 17%….each attracting strong sales in all price categories. Only BH and Westwood/ Century saw a decline in median sales prices between August 2015 and August 2014. But as I have said so many times, one month does not a year make.

Another key factor in analyzing home sales data is comparing the Selling Price (SP) to the “Original Listing Price” (OLP) — always an indicator of how strong or soft the market is. Beverly Hills, which conducts larger transactions than any other city in Southern California on a consistent basis, had a SP/OLP of92.8%….BHPO was at 88.4%….Bel-Air was at 94.7%…Westwood/Century City, which always performs well in this area, was at 101%, and Brentwood was at 94.1%. “What this is showing is that for higher priced homes, there appears to be more margin for negotiation…price drops occur when houses sit too long, and if there is a home on the higher end of the price spectrum, buyers typically come in much lower (than desired by homeowners) and when the transaction closes, we find that buyers tend to get their way, especially if homeowners are worried about the market/economy.

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Increase in home prices spark home equity borrowing Homeowners are once again discovering a new money source: Their homes! According to Black Knight Financial Services, a sharp recovery in home prices over the past few years has given homeowners considerably more equity to tap, about $825 billion collectively. As mentioned in the previous article, this has added to the lack of inventory as potential sellers are staying in their homes rather than selling them. “I cannot tell you how many potential listing appointments I go on where the sellers are undecided as to selling their current residence and purchasing a new home or staying put and fixing up their current home”. Even with the increased value of their current home, it also means that the value/price of their projected new home will be higher, in some cases more than they are comfortable with. This is nearly 2 1/2 times the home equity that existed just four years ago, but tapping that equity, in the form of a home equity line of credit (HELOC), is far more difficult than it was in the last decade, when a home was synonymous with an ATM.

“There is no question that HELOCs being originated today are of exceptional credit quality,” said Ben Graboske, senior vice president at Black Knight Data & Analytics. “In fact, HELOC originations in Q1 2015 had the highest-weighted average credit score on record.”

Home equity line lending has jumped 40 percent from just a year ago, but is still 85 percent below where it was in 2007, at the height of the housing boom. These new borrowers had an average FICO credit score of 782, which is considered extremely low risk. These borrowers are also tapping their home equity for far different reasons than they did a decade ago.

“People are really focused on using it for what they need, rather than for what they want,” said Kelly Kockos, senior vice president of home equity at Wells Fargo Home Mortgage, the nation’s largest lender. “It’s less about, ‘Oh, I want a trip or a boat,’ but more what they need.”

Borrowers also want a loan that is fully amortizing, too, according to Kockos. No interest-only payments. Wells Fargo changed its home equity line product two years ago, requiring that borrowers begin making principal payments on home equity lines immediately. This keeps them from payment shock at the end of the so-called “draw period,” which is usually 10 years. Wells Fargo also has a minimum FICO requirement of 680.

******Mortgage rates remain calm…before the storm?According to the Freddie Mac Primary Mortgage Market Survey, mortgage rates barely wavered following Labor Day weekend. This comes two weeks after volatile swings in the market, some of which was due to uncertainty in China. The 30-year fixed-rate mortgage averaged 3.9% for the week ending Sept. 10, 2015, up from last week when it averaged 3.89%. A year ago at this time, the 30-year FRM averaged 4.12%.

The 15-year FRM also moved higher, averaging 3.1%, slightly up from last week when it averaged 3.09%. A year ago at this time, the 15-year FRM averaged 3.26%.

Meanwhile, five-year Treasury-indexed hybrid adjustable-rate mortgage dipped and fell to 2.91% this week, down from last week when it averaged 2.93%. A year ago, the 5-year ARM averaged 2.99%.The 1-year Treasury-indexed ARM averaged 2.63% this week, up from last week when it averaged 2.62%. At this time last year, the 1-year ARM averaged 2.45%.

Investor concerns…..However, recent economic data appeared to confirm investor concerns about slowing economic growth in China. China’s monthly PMI manufacturing data released last week declined more than expected to the lowest level in three years, and global stock markets paid the price with large declines. Slower global economic growth reduces expectations for future inflation, and mortgage rates showed modest improvement after the news.

In the U.S., core inflation remains low. The core PCE price index, the Fed’s preferred inflation indicator, was just 1.2% higher than a year ago, matching expectations. It has held steady below 1.5% so far this year. This will factor into the Fed’s decision about raising the federal funds rate.

Comments from Fed officials indicate that the labor market is on track with the Fed’s targets for a rate hike. However, Fed officials also want to be reasonably comfortable that core inflation will gradually increase to their target level of 2.0%. Fed officials are divided about the outlook for U.S. inflation, particularly in light of recent slower global economic growth.

While the U.S. economy added fewer jobs than expected in August, economists were taking a cautionary position with respect to the Fed raising interest rates. What ever happens in China, does not stay in China….so the unease remains as to whether our market gyrations are going to continue or settle down. Although the 173,000 jobs added in August was lower than the 220,000 jobs that economists were expecting, the overall 5.1 percent unemployment rate in the report – the lowest in seven years – will be hard for the Fed to ignore.

********New disclosure rule takes effect October 3…protects consumers The Consumer Financial Protection Bureau (CFPB) issued a final rule moving the effective date of the TILA-RESPA Integrated Disclosures (TRID) rule (otherwise known as the Know Before You Owe mortgage disclosure rule) to October 3, 2015.

TRID requires new mortgage disclosure forms and rules that are designed to clearly lay out the terms of a mortgage for a homebuyer. The Bureau issued the new date to correct an administrative error that would have delayed the effective date of the rule by at least two weeks.

The National Association of Realtors (NAR) said in a statement that it has worked diligently with the CFPB throughout this process, helping to ensure that the upcoming harmonization of TILA-RESPA disclosures is carried out with as little disruption to the industry as possible. In addition, NAR has worked hard to ensure members have the information they need to help educate their clients about the rule and continue the business of real estate without interruption.

“Most likely, this new disclosure rule will curb or eliminate the 30-day escrow which has been a fixture in our industry,” Carole Schiffer said. “But it’s a good rule, and we’ll see how all of this pans out once the rule is in place.” I am sure that as soon as it is in place and we are all working with it, any delays will be minimal, but until we all get up to speed, there may be a few “bumps in the road.

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This coming week will prove to be an interesting one for those of us who will be watching and waiting to see what the Federal Reserve does this coming Thursday as pertains to the increase of interest rates. According to a recent article in the Los Angeles Times, the sentiment appears to be that there will be a slight, with slight being the operative word increase in interest rates.

For the last two weeks, with kids going back to school and the oppressive heat we have been experiencing, the market has been slightly more somnolent that it was a few weeks ago. I personally am gearing up for a fabulous finish to a most interesting year and look forward to carrying you along with m. We have reduced the price on my fabulous townhouse in Mountaingate. It is a 2 bedroom, 2 bath plus den with soaring ceilings in a gated community and is now priced at $1,279,000!. Please let me know how I might assist you will all of your real estate needs.

For those of you who celebrate…. HAPPY NEW YEAR.. I wish for you all of the best!